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Insurance offered through OnPay Insurance Agency, LLC (CA License #0L29422)
Updated: September 1, 2023
When people think of Tennessee, they think Nashville, good ole’ twang and a city that strums guitars and heartstrings until the early hours of the morning. But as all Tennessee locals know, there is so much more to the state than Music City. Similarly, there is so much more to running a small business than meets the eye. As the owner of your own small business, you’re in charge of everything from opening shop to handling every crisis to paying your employees. We can’t help you with most of your day-to-day duties. What we can help you with is what we do best: payroll taxes. And even though Tennessee has no state income tax, you still have to worry about federal income tax as well as unemployment insurance.
We designed a nifty payroll calculator just for small business owners like you. All you have to do is enter wage and W-4 information for each employee, and the calculator will do the rest.
Federal payroll taxes for Tennessee employers
First of all, let’s give Uncle Sam his due. Here’s a quick rundown of the components that go into federal tax withholdings. For a more detailed explanation on all of the steps below, head on over to our comprehensive step-by-step guide.
- Gross wages, which is simply the amount of money an employee has earned during the last pay period.
- For hourly employees, multiply the number of hours worked by their pay rate — and make sure you don’t forget to take overtime into consideration.
- For salaried employees, divide each employee’s annual salary by the number of pay periods you have over the course of a year.
- Bonuses, commissions, and tips are all part of gross wages as well.
- Subtract any pre-tax withholdings. If your employees have 401(k) accounts, flexible spending accounts (FSA), health savings accounts (HSA), or any other pre-tax withholdings, subtract them from gross wages prior to applying payroll taxes.
- Deduct federal income taxes, which is the biggest tax that your employees will pay. The tax rate can range from 0% all the way up to 37%. We won’t get into the nitty-gritty here, but you can find all the withholding information you need through the IRS Publication 15-T.
- Deduct and match any FICA taxes to cover Social Security and Medicare taxes:
- For Social Security tax, withhold 6.2% of each employee’s taxable wages until they have earned $160,200 in 2023. As an employer, you must match this tax.
- For Medicare tax, withhold 1.45% of each employee’s taxable wages until they have earned $200,000 in 2023. You also must match this tax. For employees who earn more than $200,000 per year, you’ll need to withhold an Additional Medicare Tax of 0.9%, which brings the total employee Medicare withholding above $200,000 to 2.35%. Fortunately for you, employers are not responsible for paying the Additional Medicare Tax.
- Pay FUTA unemployment taxes, which is 6% of the first $7,000 of each employee’s taxable income, which comes out to a maximum tax of $420 per employee per year. The FUTA tax comes with a huge caveat that you need to know about. You can claim a tax credit of up to 5.4% for state unemployment tax you pay, as long as you pay in full and on time. It’s an easy way to save a whopping 90%, so make sure you take advantage! Only you as the employer are responsible for paying FUTA taxes, so you don’t need to withhold FUTA from your employees’ paychecks.
- Subtract any post-tax deductions. Most of your employees won’t have any post-tax deductions, but you might need to withhold things like court-ordered wage garnishments, child support, etc.
Tennessee (TN) state payroll taxes in 2023
Tennessee’s income tax is simple with a flat rate of 0%. For the calendar year 2023, Tennessee unemployment insurance rates range from 0.01% to 10%, with a taxable wage base of up to $7,000 per employee per year.
New employers pay a flat rate of 2.7%.
Write those paychecks!
Now this is music to your ears! You’ve figured out all your payroll needs, so now you can focus on the important stuff for your small business. Get your signature ready because after you’ve calculated your employees’ net pay by implementing all deductions, it’s time to write those checks.
All you have to worry about is paying your employees on time and setting aside any taxes your company is responsible for (FICA and UI payments, we’re looking at you).
You will need to fill out Form 941 to file federal taxes on a quarterly basis, and Form 940 to report your annual FUTA liabilities. You can pay taxes online using the EFTPS payment system. All the IRS employment tax due dates can be found here.
Do you have employees nearby too? These might be helpful.
Additional TN payroll tax resources:
If you’re still looking to fill your brain with more juicy payroll tax facts, here are some additional resources and contact information:
Tennessee Department of Labor & Workforce Development (844) 224-5818 | Taxes and Insurance | Register Your Business
Tennessee Department of Revenue (800) 342-1003 | Tax Resources | Tennessee Withholding Requirement
These rates are based on local legislation and can change at any time. Always consult a tax professional if you are unsure about your obligations.
Other Tennessee payroll calculators to try
Employers in Tennessee can take advantage of the payroll calculator at the top of this page to quickly calculate their employees’ gross pay, net pay, and deductions in a few clicks. But occasionally, a company needs to do a little more math before they can cut staff paychecks. For example, do you operate a business where employees get tips from customers? Remember that you are responsible for withholding taxes from your employees’ paychecks based on the tips they receive. Additionally, if an employee leaves for another employer, you’ll need to calculate their final pay. So, if you need a little more help with the number-crunching, check out some of the calculators below.